With the U.S. military stalled by a sandstorm south of Baghdad and the security of Iraq's oil fields still in question, oil prices rose yesterday -- along with concern that the war may prove more lengthy than first expected.
A protracted shutdown of production at Iraq's 1,500 to 2,000 wells, which pump 2.5 million barrels a day onto world markets, remained a distinct possibility yesterday, analysts said.
Military officials deemed it unsafe for civilian firefighters to enter the oil fields to douse fires at seven wells ignited by retreating Iraqi forces. Some other wells are also considered dangerous because they have been rigged with explosives or have munitions buried in the fields nearby.
The U.S. Central Command in Kuwait reported that Army and Navy Explosive Ordnance Disposal teams swept the fields yesterday looking for explosives to make certain the vast Rumaila area was safe for firefighters from Houston-based Boots & Coots International Well Control Inc. to tackle the seven fires. Military spokesmen said they did not know whether fires had also been set at wells in the Kirkuk region north of Baghdad, an area not controlled by coalition forces.
For several days now, the price of crude on the New York Mercantile Exchange has fluctuated almost hour by hour with changing fortunes on the battlefield. News of allied successes has pushed down the cost of oil, while setbacks, such as reports yesterday that the Iraqi Republican Guard was moving to confront U.S. forces, have helped shove prices higher.
The price of oil for May delivery rose 66 cents, or 2.4 percent, to $28.63 a barrel yesterday, although that was still substantially below prices in the upper thirties shortly before the war started a week ago. On Tuesday, when residents in Basra, Iraq's second-largest city, started an uprising against the rule of President Saddam Hussein, the price fell 69 cents.
Meanwhile, civil unrest in Nigeria has caused some oil companies to reduce output from Africa's largest producer, adding to the pressure on prices.
Adam Sieminski, oil strategist for Deutsche Bank AG in London, said, "With inventories low and spare production capacity largely used up, we expect oil prices to remain volatile until the military situation clarifies in Iraq and the political turmoil in Nigeria settles."
Still, Sieminski said that despite uncertainty about the war's duration, the Organization of Petroleum Exporting Countries "looks to have the capacity to pump the 25.5 million [barrels a day] we see needed to balance" world oil markets in the second quarter. But he said that with OPEC producing at only 96 percent of its capacity, "the risks of further deterioration of supply leave upside pressures on oil prices, in the near term."
"Prices are very volatile right now," said John H. Lichtblau, chairman of the Petroleum Industry Research Foundation in New York. "One good item and prices could go down, and if there's aggression, it will go up."
But he added, "The world can do without Iraqi oil for the foreseeable future," in part because with warmer springtime temperatures taking hold in the United States, "there's very little heating oil demand" and the gasoline demands of the summer driving season are several weeks away.
"But long term, we need Iraqi oil," Lichtblau said, "and more important, Iraq needs it to export to survive."